Investing.com -- EUR/USD surged to its highest level in a month, as the dollar fell precipitously on Wednesday afternoon after the Federal Reserve lowered its interest rate forecast at a closely-watched meeting.
The currency pair traded in a broad range between 1.1058 and 1.1241 in Wednesday's session before settling at 1.1217, up 0.99% on the session. Since opening the month below 1.09, the euro has jumped by more than 0.8% on three separate occasions, soaring by more than 3% in a span of two weeks. After crashing by more than 10% against the dollar in 2015, the euro has rallied 3.3% versus its American counterpart since the start of the new year.
EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1335, the high from Feb. 12.
On Wednesday afternoon, the Federal Open Market Committee (FOMC) held the Federal Funds Rate at a target range between 0.25% and 0.50%, leaving its benchmark interest unchanged for the second consecutive month. Citing increased global and economic and financial risks and a modest uptick in inflation, Fed chair Janet Yellen emphasized that conditions in the economy will likely warrant gradual interest rate hikes for the remainder of the year. Notably, the FOMC lowered its projections for future rate increases by 50 basis points for each of the next two years. The Fed now expects to raise interest rates twice in 2016, down considerably from December forecasts of four potential interest rate hikes this year.
"In addition, proceeding cautiously in removing policy accommodation at this time will allow us to verify that the labor market is continuing to strengthen despite the risks from abroad," Yellen said on Wednesday. "Such caution is appropriate given that short-term interest rates are still near zero, which means that monetary policy has greater scope to respond to upside than to downside changes in the outlook."
Since the FOMC last met in January, Yellen noted that the economy has expanded at a moderate pace while she has noticed additional strength in the labor market. Over the last two months, the unemployment rate has remained under 5.0% while the labor market has averaged monthly job gains of 230,000 dating back to December.
While Yellen said that inflation has moved higher in recent months, it still remains far below the FOMC's targeted objective of 2%. The Fed's cautious stance comes days after the European Central Bank unveiled a comprehensive set of easing measures last week in a last-ditched attempt to bolster economic growth and stave off deflation throughout the euro zone.
At a meeting last week in Frankfurt, the ECB's Governing Council reduced its deposit rate by 0.1 to Minus-0.4% and cut its refinance rate by 0.05% to a new record-low of zero. Then, on Tuesday, the Bank of Japan held its benchmark interest rate steady at negative-0.1%.
Yellen said on Wednesday that the FOMC is not actively discussing the prospect of adopting a negative rate policy.
"We are certainly not actively considering negative rates," Yellen said. "We are looking at the experience in other countries, which I would judge seem to have mixed effects." "If we found ourselves in the unlikely situation where we needed to add accommodation, we have a range of tools," Yellen added.
"We know from the things we did in the past, we have a number of options in respect with the maturity of our portfolio and with respect to asset purchases." Any rate hikes by the Fed this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.
Yields on the U.S. 10-Year fell six basis points on Wednesday to 1.91%. Over the last month, government bond yields on U.S. 10-year Treasuries are up 14 basis points.